Sectornomics

Forum thread: Creating A Digital Sector

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There are lots of goods that we treat like private goods... photos, books, music, movies, software... but they aren't actually private goods.  Maybe they aren't technically public goods either.

In any case, hopefully most of you intuitively appreciate that sharing a couch really isn't the same thing as sharing an ebook.  Just like sharing an apple really isn't the same thing as sharing an mp3.  Just like sharing a cab really isn't the same thing as sharing a jpg.

Personally, I'm pretty sure that it's extremely detrimental to try and treat digital goods like private goods.  One solution would be to create a digital sector.  Nobody would ever have to buy anything digital ever again.  Instead... everybody would have to spend X% of their income on digital goods.  It would be entirely up to each and every person to decide which digital goods they spent their X% on.

If we created a digital sector... then it would be the epitome of "sharing is caring".  With the current system... in many cases... "sharing is criminal".  Digital pirates can end up paying hefty fines if they get caught.  We've all been thoroughly warned that "piracy is not a victimless crime".

Can you imagine living in a world where sharing digital goods was really encouraged rather than extremely discouraged?  Can you imagine living in a world without any more paywalls?  This world is entirely possible.  Concentrate concentrate... it's in your reach.   We can disrupt the shit out of the current system.

A digital sector wouldn't be without its challenges though.  What would prevent two friends from creating blogs just so that they could pay each other?  How could we minimize cheating?  I'm sure there's a solution.  Given enough eyeballs, all solutions can be found.  Given enough eyeballs, all cheaters can be caught?

One particularly fascinating challenge would involve determining the percentage of income that should be spent on digital goods.  Everybody would have to spend X% on digital goods... but what's the best X?  What's the optimal X?  Clearly there would be problems if X was suboptimal.  If X was too small... then we'd suffer from a shortage of digital goods.  But if X was too large... then we'd suffer from a shortage of non-digital goods.

One possible solution would be to create a non-profit organization dedicated to deciding what X should be.  For convenience sake we can call this non-profit the Digital Balance Society (DBS).  Let's say that you were suffering from a shortage of non-digital goods.  In order to communicate your predicament, you'd simply boycott the DBS and let them know why you were doing so.  With this financial feedback mechanism... the optimal X would be whichever X maximized the DBS's revenue.

I'm sure there's a better solution.  There's always a better solution.

Another challenge would be enforcement.  Perhaps there would have to be a government organization called the Digital Revenue Service (DRS).  Their job would be to ensure that people pay their digital "taxes" (daxes).  The DBS would determine the dax rate and the DRS would enforce it.

Of course... just like with taxes... there's absolutely no reason that the dax rate couldn't be progressive... or even extremely progressive.  Maybe people with incomes under say, $25,000 dollars, would not be required to spend any percent of their income on digital goods.

Let's imagine that poor people no longer spent any money on digital goods.  What impact would this have on digital goods?  What impact would this have on non-digital goods?

I think it's really important to understand that consumers use their cash to direct the economy like a conductor uses a baton to direct an orchestra.  Consumption is a function of direction.  Being able to read a ton of sci-fi books depends on consumers directing enough cash to sci-fi books.

This idea of creating a digital sector falls under the category of "sectornomics".  I would say that I just made this word up but a Google search for "sectornomics" reveals that there are currently 807 results for this word.  It doesn't seem like any of those uses of the word are what I have in mind.  There are relatively few search results though so I'll throw my own definition into the ring.

Just like we could create a digital sector... we could also create a non-profit sector.  Well... we already have a non-profit sector.  However, people are not currently required to spend Y% of their income in the non-profit sector.

Right now we are required to spend Z% of our income in the public sector.  Fully applying sectornomics to the public sector would only involve allowing people to choose where their taxes go.  And again, we've already had plenty of threads about pragmatarianism so please feel entirely free to not to discuss it in this thread!  Although, I would certainly be the last person to stop you from doing so!  :D

Based on what we've covered... the sectornomics breakdown would look something like this...

1. Digital sector: X%
2. Non-profit sector: Y%
3. Public sector: Z%
4. None-of-the-above sector: A%

X% + Y% + Z% + A% = 100%

Initially I wanted to create this thread to survey members about what the optimal dax rate would be.  But I suppose it's more logical to first establish how many members would even want a digital sector.


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Your concept of 'making your valuation more accessible', in real economic terms, means 'voluntarily eliminating your personal consumer surplus'. If you can't see how idiotic that is I don't think anything can save you. - Maqo

Here's what a socialist economist had to say about capitalism...

The system of free competition is a rather peculiar one. Its mechanism is one of fooling entrepreneurs. It requires the pursuit of maximum profit in order to function, but it destroys profits when they are actually pursued by a larger number of people. - Oskar Lange, On the Economic Theory of Socialism: Part Two

How are profits destroyed when they are pursued by a large number of people?

Let's say that it's extremely profitable to grow and sell dragon fruit.  This means that the demand for dragon fruit is far greater than the supply of dragon fruit.  In other words... a lot of people want dragon fruit but it is very scarce.

Because it's extremely profitable to grow/sell dragon fruit... we can expect that more and more farmers would start growing/selling dragon fruit.  But what happens when the supply of dragon fruit increases?  The profitability would decrease.

This is how profits are destroyed when they are pursued by a large number of people.  On the one hand... profits were destroyed...but on the other hand... dragon fruit went from being scarce to being abundant.  Which is beneficial for consumers.

A straight line is the shortest distance between two points.  Here are the two main economic points...

Point A: scarcity
Point B: abundance

The larger the consumer surplus (the smaller the profits for producers).... the longer the distance between these two points.  The smaller the consumer surplus (the larger the profits for producers)... the shorter the distance between these two points.

Sacrificing consumer surplus means giving up momentary pleasure for future benefit.

When dragon fruits were super expensive (Point A)... who purchased them?  Poor people?  Nope.  Rich people did.  Rich people can afford luxuries.  But even though dragon fruits were expensive luxuries... we can guess that there were quite a few rich people who received some amount of consumer surplus when they purchased them.  In other words.... many rich people's valuation of dragon fruits was greater than their allocation to dragon fruits.  This makes sense to you.  You think it would be idiotic to eliminate consumer surplus.  This means that you think it's better when poor people have to wait longer for dragon fruits to become a lot more affordable (Point B).  

From my perspective... intelligent movies are super scarce right now (Point A).  Does this mean that intelligent movies are super expensive?  Nope.  This is because we pretend that movies are private goods when actually they are digital goods.  Therefore.... we should create a digital sector.  The optimal dax rate would eliminate consumer surplus.  Rich people wouldn't pay $10 dollars for intelligent movies.  Instead, they would spend $1000s of dollars on intelligent movies.  This would be the shortest path to Point B.

Would poor people benefit if we had an abundance of intelligent movies?  Of course they'd benefit.   Intelligent movies educate the public... and public education has many positive externalities.  

Everybody would really benefit if there was an abundance of movies about Adam Smith...

When by an increase in the effectual demand, the market price of some particular commodity happens to rise a good deal above the natural price, those who employ their stocks in supplying that market are generally careful to conceal this change. If it was commonly known, their great profit would tempt so many new rivals to employ their stocks in the same way, that, the effectual demand being fully supplied, the market price would soon be reduced to the natural price, and perhaps for some time even below it. If the market is at a great distance from the residence of those who supply it, they may sometimes be able to keep the secret for several years together, and may so long enjoy their extraordinary profits without any new rivals. Secrets of this kind, however, it must be acknowledged, can seldom be long kept; and the extraordinary profit can last very little longer than they are kept. - Adam Smith, Wealth of Nations

Entrepreneurs want to try and cheat by hiding their profits from other entrepreneurs.  Who does this cheating hurt?  Consumers of course.  What about when consumers try and hide their true valuations from all the entrepreneurs?  Is this cheating?  It really is.  Who does this cheating hurt?  Again... consumers!  But in this case, consumers are inadvertently hurting themselves.

It's true that right now we have lots of abundance... and we also have consumer surplus.  But our hidden valuations really didn't facilitate any of the abundance that we do have.  All the abundance that we do have is the result of entrepreneurs acting on the information that they did have access to.  Entrepreneurs really did not act on information that they did not have access to.  If a decade ago we had been far more forthcoming about our true valuations then we would now have a lot more abundance.  With this in mind... we should really sacrifice momentary pleasure for future benefit.

Rights vs Results

Reply to: I Agree with Milton Friedman! by James Kwak


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This is kinda a strawman. A “rights” based argument for property ownership is an extremely flimsy argument. Is it even an argument? The bible says, “thou shall not steal”. That’s not an argument… it’s a divine decree.

From the economic perspective… the issue really isn’t “rights”… it’s “results” (aka abundance).

Bob calls himself a “maker”. Should Bob keep his money? From the economic perspective… the answer depends on whether taking his money increases or decreases abundance.

If you want to argue that Bob has skills… then taking his money will decrease abundance. If you want to argue that Bob doesn’t have skills and just got lucky… then why are you also arguing that we should take his money? Perhaps you’re actually arguing that Bob is always lucky?

If you want to argue that Bob is always lucky… then your redistribution argument would have some logical basis. But it sure wouldn’t have any economic basis. Taking money from Lucky Bob would decrease abundance. This is because Lucky Bob consistently manages to invest in beneficial ventures. For example, he invested in Uber from the get go. Did you? I sure didn’t.

Getting back to the bible… the most relevant story is the parable of the talents. Taking gold from the most skilled and giving it to the least skilled would certainly decrease abundance.

In terms of fighting poverty… decreasing poverty depends on increasing opportunity. And increasing opportunity depends on increasing abundance. Abundance is a function of how society’s limited resources are used.

Moreover, what is a resource today may cease to be one tomorrow, while what is a valueless object today may become valuable tomorrow. The resource status of material objects is therefore always problematical and depends to some extent on foresight. An object constitutes wealth only if it is a source of an income stream. The value of the object to the owner, actual or potential, reflects at any moment its expected income-yielding capacity. This, in its turn, will depend on the uses to which the object can be turned. The mere ownership of objects, therefore, does not necessarily confer wealth; it is their successful use which confers it. Not ownership but use of resources is the source of income and wealth. — Ludwig Lachmann, The Market Economy and the Distribution of Wealth

Also…

Taxes upon transfer, besides the mischief of pressing upon capital, are a clog to the circulation of property. But, has the public any interest in its free circulation? So long as the object is in existence, is it not as well placed in one hand as in another? Certainly not. The public has a perpetual interest in the utmost possible freedom of its circulation; because by that means it is most likely to get into the hands of those, that can make the most of it. Why does one man sell his land? But because he thinks he can lay out the value to more advantage in some channel of productive industry. And why does another buy it? But because he wishes to invest a capital, that is lying idle, or less productively vested; or because he thinks it capable of improvement. The transfer tends to augment the national income, because it tends to augment the income of the two contracting parties. If they be deterred by the expenses of the transfer, those expenses will have prevented this probable increase of the national income. — J.B. Say, A Treatise on Political Economy

Markets work because it’s up to consumers to decide how well producers are using society’s limited resources. Consumers, with their infinite variety, preferences and circumstances, are the ultimate judges. Aka “consumer sovereignty”. It’s up to consumers to decide, for themselves, whether Bob has adequately earned their money.

Let’s review…

If Bob is skilled, and you take money from him, then you’re subverting the true will of the people. You’re also decreasing abundance which decreases opportunity which increases poverty. If, on the other hand, Bob just got lucky… then there’s no point in taking money from him. Chances are just as good that his money will circulate soon enough on its own.

So I’m against taxes because I’m for abundance. Actually, I’m not against taxes per se… I’m against the absurdity of allowing congresspeople to allocate them. If 500 government planners were better than an entire nation of people at allocating for abundance… then socialism would have worked. The absolute absurdity of our age is the belief that socialism somehow manages to succeed for the public sector despite the fact that it fails for the entire economy. Socialism fails just as much for public goods as it does for private goods. Taking consumer choice out of the equation will always have logically detrimental consequences.


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Reply to: The False Tradeoff Between Efficiency and Equity by Haynes Goddard


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The heart of efficiency isn’t just opportunity cost… it’s also the choices we make… which depend largely on our preferences and circumstances.

A vegetarian looks at a menu and rules out any dishes that contain meat. Then she looks at the prices and imagines how much value she’d derive from the alternative uses of her money. She also recalls the last time that she had each dish. Perhaps she also counts calories and considers nutritional value… or lack thereoff.

After an immense amount of computation/calculation…most of which occurs as a background process… she filters out all the other options and orders a salad. The waiter brings her a steak. It’s a non sequitur because the conclusion (steak/supply) doesn’t follow from the premise (her vegetarian preference).

It’s an inefficient allocation of resources.

As we can see, efficiency is easily and reasonably defined by the supply’s distance from a consumer’s demonstrated preference.

Except, you’re not defining efficiency in terms of consumer preference. You’re just throwing opportunity cost out there without any recognition or acknowledgement of all the other relevant parts. This vagueness allows you to argue that efficiency is a type of fairness.

Efficiency really isn’t fairness. Efficiency is the most valuable uses of society’s scarce resources. And value is a function of choice, sacrifice, preference, circumstance….which can all be rolled into “demand”. How well supply matches demand is a matter of efficiency.

Fairness disregards demand. Fairness is voters reaching into each other’s pockets. Fairness is an argument made by people who think that abundance is a function of taking rather than trading. Fairness is about diverting scarce resources away from more valuable uses. Fairness is a function of economic ignorance.

There’s nothing false about the tradeoff between efficiency and equity. There’s a very distinct and concrete tradeoff. We either have efficiency and abundance or equity and scarcity. These two things are diametrically opposed.

To be clear… because of the free-rider problem… taxation can increase efficiency… if, and only if…taxpayers are free to choose where their taxes go.

Prayer and Sacrifice

Jason Kuznicki, over at the League of Ordinary Gentlemen, recently posted this blog entry on voting...Voting Part I: I Am Jason, of the Lizard People.  It's pretty great except for a few minor details.

In his post he compares voting to sacrifice.  Actually...voting is closer to praying...and paying taxes is the sacrifice.  To sacrifice means to give up something you value.  But if you just give up something you value for nothing...then that isn't a sacrifice...it's a waste.  That's why, when we sacrifice something we value, we expect something of greater value in return...   

Sacrifice will always be distinguished from the pure gift (if there is any).  The sacrifice proposes an offering but only in the form of a destruction against which it exchanges, hopes for, or counts on a benefit, namely, a surplus-value or at least an amortization, a protection, and a security. - Jacques Derrida, Given Time: Counterfeit Money

In other words...we all want to profit.  Therefore, "sacrificing" is the same thing as "spending".  Consider this dialogue from John Holbo's book on Reason and Persuasion...

S: You could have been much more concise, Euthyphro, if you wanted to, by answering the main part of my question.  You're not exactly dying to teach me - that much is clear.  You were just on the point of doing so, but you turned aside.  If you had given the answer, I would already be well versed in holiness, thanks to you.  But as it is, the lover of inquiry must chase after his beloved, wherever he may lead him.  Once more then: what do you say that the holy is, or holiness?  Don't you say it's a kind of science of sacrifice and prayer?
E: I do.
S: To sacrifice is to give a gift to the gods; to pray is to ask them for something?
E:  Definitely, Socrates.
S: Then holiness must be a science of begging from the gods and giving to them, on this account.
E: You have grasped my meaning perfectly, Socrates.
S: That is because I want so badly to take in your wisdom that I concentrate my whole intellect upon it, lest a word of yours fall to the ground.  But tell me, what is this service to the gods?  You say it is to beg from them and give to them?
E: I do
S: And to ask correctly would be to ask them to give us the things we need?
E: What else?
S: And to give correctly is to give them in return what they need from us?  For it would hardly represent skill in giving to offer a gift that is not needed in the least.
E: True, Socrates
S: Holiness will then be a sort of art for bartering between gods and men?
E: Bartering, yes - if you prefer to call it that.

Oh man, Socrates cracks me up.  That's probably one of the earliest documented cases of economic imperialism...as in economics invading other fields of study...in this case religion.  There's famine (scarcity of rain) so you sacrifice a cow to your god and pray for rain.  The objective is always abundance...which is epitomized by Eden and Heaven.  And it's the same concept with our political system.  We sacrifice our taxes and pray for economic growth...aka abundance.  So here's the breakdown...

Religion: trade between man and god
Politics: trade between man and government
Economics: trade between man and man

But it's all trade!  Therefore, it's all economics.  The debate...as always...is which company/party/god actually does listen to our prayers and is capable of providing abundance.  By far the very best reference that I've run across that encapsulates this debate is in the Bible...1 Kings 18.  If you haven't already read the Bible then this is the one story that will give you the most bang for your buck.

Here's a bit of background on the story.  The people of Israel started worshiping another god...Baal...and because God is a jealous god...he caused a severe drought.  These days droughts are still a big deal...but thanks to the extent of international trade...they don't have as severe an impact as they used to have.  The closest equivalent we have are depressions/recessions.

In order for the Israelites to understand exactly why they were experiencing such a severe drought...God sent his prophet Elijah to inform them.  Perhaps most of them already suspected that other people's behavior had something to do with the drought...but they couldn't be certain.  Kind of like with us and depressions.  What we all want is irrefutable proof.  So Elijah offers to conclusively prove which god is the true god.

20 So Ahab sent unto all the children of Israel, and gathered the prophets together unto mount Carmel.
21 And Elijah came unto all the people, and said, How long halt ye between two opinions? if the Lord be God, follow him: but if Baal, then follow him. And the people answered him not a word.
22 Then said Elijah unto the people, I, even I only, remain a prophet of the Lord; but Baal's prophets are four hundred and fifty men.
23 Let them therefore give us two bullocks; and let them choose one bullock for themselves, and cut it in pieces, and lay it on wood, and put no fire under: and I will dress the other bullock, and lay it on wood, and put no fire under:
24 And call ye on the name of your gods, and I will call on the name of the Lord: and the God that answereth by fire, let him be God. And all the people answered and said, It is well spoken.
25 And Elijah said unto the prophets of Baal, Choose you one bullock for yourselves, and dress it first; for ye are many; and call on the name of your gods, but put no fire under.
26 And they took the bullock which was given them, and they dressed it, and called on the name of Baal from morning even until noon, saying, O Baal, hear us. But there was no voice, nor any that answered. And they leaped upon the altar which was made.
27 And it came to pass at noon, that Elijah mocked them, and said, Cry aloud: for he is a god; either he is talking, or he is pursuing, or he is in a journey, or peradventure he sleepeth, and must be awaked.
28 And they cried aloud, and cut themselves after their manner with knives and lancets, till the blood gushed out upon them.
29 And it came to pass, when midday was past, and they prophesied until the time of the offering of the evening sacrifice, that there was neither voice, nor any to answer, nor any that regarded.
30 And Elijah said unto all the people, Come near unto me. And all the people came near unto him. And he repaired the altar of the Lord that was broken down.
31 And Elijah took twelve stones, according to the number of the tribes of the sons of Jacob, unto whom the word of the Lord came, saying, Israel shall be thy name:
32 And with the stones he built an altar in the name of the Lord: and he made a trench about the altar, as great as would contain two measures of seed.
33 And he put the wood in order, and cut the bullock in pieces, and laid him on the wood, and said, Fill four barrels with water, and pour it on the burnt sacrifice, and on the wood.
34 And he said, Do it the second time. And they did it the second time. And he said, Do it the third time. And they did it the third time.
35 And the water ran round about the altar; and he filled the trench also with water.
36 And it came to pass at the time of the offering of the evening sacrifice, that Elijah the prophet came near, and said, Lord God of Abraham, Isaac, and of Israel, let it be known this day that thou art God in Israel, and that I am thy servant, and that I have done all these things at thy word.
37 Hear me, O Lord, hear me, that this people may know that thou art the Lord God, and that thou hast turned their heart back again.
38 Then the fire of the Lord fell, and consumed the burnt sacrifice, and the wood, and the stones, and the dust, and licked up the water that was in the trench.
39 And when all the people saw it, they fell on their faces: and they said, The Lord, he is the God; the Lord, he is the God.
40 And Elijah said unto them, Take the prophets of Baal; let not one of them escape. And they took them: and Elijah brought them down to the brook Kishon, and slew them there.
41 And Elijah said unto Ahab, Get thee up, eat and drink; for there is a sound of abundance of rain.

Man, I really love that story.  It's timeless and infinitely applicable.  For example...it applies to the debate between liberals and conservatives and it also applies to me right here right now.  Who am I?  I am Elijah...I am a prophet of Baal...I am Joel Osteen...I am Rand Paul...I am Paul Krugman...I am just another entrepreneur trying to sell you a product/belief/idea that will increase your abundance.

What I want you to consume is the belief that tolerance will produce abundance.  You spend your money on your products/services and I'll spend my money on my products/services.  You make your sacrifices to your gods and I'll make my sacrifices to my gods.  You spend your taxes on your public goods and I'll spend my taxes on my public goods.  There's no fundamental difference...it's all trade for abundance sake.  The thing is...most of you already believe in economic and religious tolerance...but barely anybody believes in political tolerance.  But if you don't believe in political tolerance...then unfortunately you don't understand how tolerance produces abundance.

How does tolerance produce abundance?  Tolerance produces abundances because it allows for heterogeneous activity.  It gives people the freedom to tackle the same problem from different angles.  The problem of scarcity has an infinite number of solutions...and abundance abounds when we give each other the freedom to come up with new and innovative solutions.  And this is as true in the public sector as it is in the private sector.